Lumenalta Survey Finds 1 in 4 PE Firms Passed on Deals Due to AI Unpreparedness

In an industry where milliseconds can mean millions, private equity (PE) firms are increasingly turning to artificial intelligence (AI) to gain a competitive edge. From sourcing deals to optimizing exits, AI tools are transforming how capital is allocated, risks assessed, and value created. Yet, as algorithms infiltrate boardrooms, questions about transparency, bias, and job displacement loom large.

Deal Sourcing Beyond the Human Network

Traditionally, PE dealmaking relied on proprietary networks and instinct. Today, AI tools scan global databases, news outlets, and regulatory filings for undervalued targets, offering a significant advantage in identifying potential investments. A recent survey by Lumenalta underscores AI’s growing influence, with 92% of private equity professionals reporting positive impacts of AI capabilities on the valuation of acquisition targets. Companies lacking AI readiness risk losing competitive appeal, as 25% of PE firms have passed on investments due to concerns about AI preparedness.

Due Diligence: Speed Meets Scrutiny

AI accelerates due diligence by parsing thousands of contracts, financial statements, and legal documents in hours. While this enables faster risk assessment, reliance on historical data presents challenges. Models trained on past crises may struggle to identify novel risks, such as pandemic-driven disruptions or geopolitical shocks.

From Reactive to Predictive Portfolio Management

Post-acquisition, AI-driven analytics platforms optimize portfolio performance. Predictive analytics stands out as a key value driver for portfolio management, as identified by 73% of professionals in Lumenalta’s survey. These tools offer measurable returns on investment, with 35% of firms seeing ROI within 1–2 years, and 14% achieving returns in under six months.

Timing the Market with Algorithms

Determining the optimal exit window, once a subjective endeavor, increasingly hinges on algorithmic precision. Advanced AI models simulate market conditions, weighing variables like interest rates and sector trends to optimize exit strategies.

Risks and Ethical Dilemmas

AI’s rise sparks concerns over bias in training data, opaque “black box” algorithms, and integration challenges. According to Lumenalta’s findings, half of PE firms face difficulties merging AI with legacy systems, and 46% cite talent shortages as a critical barrier. Automation also threatens entry-level roles, but firms are adapting by creating new AI-focused executive roles to bridge skill gaps.

The Road Ahead: Collaboration or Competition?

Private equity firms are significantly investing in AI enablement. Smaller firms are increasingly partnering with startups to democratize access, while ethical frameworks are emerging to address concerns about bias and accountability.

“AI isn’t just a tool; it’s becoming the backbone of modern business,” says Dave Price, Managing Director at Lumenalta. “Firms that fail to embrace this technology are opting out of future returns.”

With 93% of professionals anticipating a moderate-to-significant impact of AI on the industry within a decade, the integration of AI promises unprecedented efficiency. However, ethical and operational challenges demand vigilance, reinforcing that while technology drives value, human judgment ultimately determines its worth.